Armadale Capital (LSE:ACP) jumped 8.6pc on Monday after completing a strategic placing at a considerable premium to its market value. The graphite-focused business raised £500,000 at 1.8p a share – far above the 1.675p at which its shares were sitting when trading closed on Friday and a 64pc premium to its last financing.
Armadale’s technical director Matt Bull also took part in the placing – which also saw the company issue three-year warrants that holders can exercise at 3p. Bull converted £13,340 of fees into new shares on the same terms as the financing and also invested a further £16,660 in the company. His total stake in Armadale now sits at 8.24pc. With the company trading up another 7.4pc at 2p a share on Tuesday morning, this position is now worth roughly £664,000.
In its update, Armadale said that its latest cash injection would go towards bringing its flagship Mahenge Liandu graphite project to the point of project-level construction financing. The firm is currently completing a definitive feasibility study for the Tanzania-based asset, recently confirming better-than-expected throughput and the consistent production of graphite flakes of up to a purity of 97.1pc. As the organisation has highlighted before, prices for graphite concentrate with a purity of more than 95pc can demand much higher rates than the standard grade of 95pc or less.
Elsewhere on Monday, Armadale said that project-level financing discussions for the construction of Mahenge Liandu are in progress with third parties. Director Nick Johansen added:
‘The company is now moving at pace to complete the Mahenge Liandu DFS and associated work streams and as previously stated we are focusing more definitively on our commercialisation plans, especially off-take and project level finance agreements, to ensure the transition from explorer to emerging producer continues to gain momentum. Further announcements are expected in the near future across various project related activities.’
Mahenge Liandu is wholly-owned by Armadale and located in a highly prospective graphite region called Mahenge. It holds a JORC-compliant indicated and inferred mineral resource estimate of 51.1Mt at 9.3pc TGC. Armadale is currently completing a DFS based on the results of a scoping study based on a throughput of 400,000tpa over 32-year mine life. According to the business, this showed that the project offers ‘robust economics and warrants further development’.
Mahenge Liandu’s scoping study suggested that the project would deliver an average of 49,000tpa of high-quality graphite over its life. This coupled with a low operating cost of US$408/t, a pre-tax IRR of 122pc, and an NPV of $349m under these assumptions.
This final figure is already well over Armadale’s current £6.94m market cap. However, the scoping study was also based around a conservative $1,272/t graphite price and 95pc average concentrate purity. Graphite prices are currently sitting much higher than this, and Mahenge Liandu is proven to be able to produce the material consistently at a grade considerably higher than 95pc. With this in mind, the project could, in reality, pack a much greater economic punch than its scoping study currently suggests.
We recently looked at whether investors are missing a significant opportunity at Armadale given these conservative figures on our sister site MiningMaven.com. As we highlighted, Australian miner Black Rock recently agreed to supply ‘premium’ graphite with a nominal grade of between 97.5-98.5pc for $1,490/t and ‘ultra’ graphite grading more than 99pc for $2,161/t. Both of these prices come in at a significant premium to the $1,272/t used by Armadale in the scoping study for Mahenge Liandu, which neighbours and shares many similarities with Black Rock’s Mahenge asset.
If Armadale can secure binding sales agreements at a much higher price than $1,272, then Mahenge Liandu’s fundamentals would be enhanced even further. For example, if Armadale could agree on a graphite sale price of $2,161/t, then the project’s NPV would nearly double. If this occurred, then the argument for Armadale being undervalued would strengthen, and the likelihood of a re-rate could increase. To read more, please click here.